Divergence as an Indicator

Indicators form an integral part of chart reading, along with chart patterns, trend lines, resistance / support levels etc. Technical analysts compare the indicators to the price movement to see if they move in synchronisation or if there are discrepancies present. However, since the calculations of these technical indicators are based on the price movement, they usually mirror the price movement. When the price rallies, the underlying momentum in the price causes the indicator to rally as well, and the same applies when the price starts falling. This is the reason why most indicators are found to be lagging. Very few indicators have characteristics that can be defined as leading, and one such characteristic is “Divergence” which is often considered an effective and leading indicator of price movement.

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